Shorts get a bad rap. Any Internet message board that even lightly deals with the world of investing is almost certainly filled with banter blaming just about every bad tick of the tape on the folks with short positions. On a terrible day… it’s the naked shorts, of course.

It is a rare day that I will say anything negative about an investor that wants to lend shares today and pay for them tomorrow. Short selling is a vital, often extremely profitable investing strategy.

While few folks will admit it, shorts actually play a critical role in the markets constant search for equilibrium. They can even create profit opportunities.

That is certainly the case with NCI Building Systems (NYSE:NCS). Its shares are up by nearly 20% today on what would, at first, appear to be absolutely no reason.

But digging a little deeper, it is not hard to see what is likely happening with this $54 million company and its $2 stock.

Those thieves!

According to the most recent reports, shorts are in control of nearly a third of the company’s shares. That’s a phenomenal figure most recently reserved for the likes of Ford (NYSE:F) and Sirius XM Satellite Radio (NASDAQ:SIRI).

With 30% of the shares out short, it would not take much covering to send prices surging. After falling from a high of $42 last September to $2 earlier this week, you can bet a lot of traders have hit their stops and are cashing in and moving on.

A 95% gain from a short position is a wonderful accomplishment and few investors are willing to sit risk losing their profits for the minimal upside that remains.

I hate to burst the bubble of potential long investors that thought this was the start of something much bigger, but the charts always tell the truth.

From what I see, today’s action looks like the first paragraph in the last chapter of a very large fall. It is all because of those rascally shorts.

Source: NCI Building Sytems: Blame It on Those Greedy Shorts